P2P industry insulated from the Brexit effect, but “won’t be unscathed”
UK PEER-TO-PEER lenders will be largely insulated from the economic fallout of Brexit due to their domestic focus but “will not be unscathed,” a Standard & Poor’s (S&P) report has predicted.
The research noted that strong growth in the UK P2P industry led to new and more stable sources of funding, but “uncertainties over Brexit and recent platform closures could point to expansion headwinds.”
“The P2P lending industry seemed to weather the original June 2016 Brexit vote without a significant hit to origination volumes or investor confidence,” the report said. “However, almost three years later, the prolonged ambiguity is showing itself in consumer and investor confidence. If this atmosphere spreads into a more general economic malaise, the P2P lending industry will not be immune.”
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The report suggested that if UK businesses lose access to the EU’s Single Market, they may face higher regulatory burdens if they choose to set up operations in European countries, thereby limiting the expansion plans of UK-based P2P platforms.
“This might not pose a great challenge for larger, well-funded platforms, but it could cut off potential growth avenues for smaller platforms, likely intensifying domestic competition,” said the report. “Competition for capital could also intensify. If capital cannot flow freely between EU nations and the UK, access to EU institutional capital may become more difficult to acquire.”
Deteriorating credit quality may also have a negative impact on the UK’s lending community, S&P warned, pointing towards the 11.9 per cent year-on-year increase in company insolvencies in England and Wales in the second quarter of 2019. Access to international talent may also be limited due to the Brexit effect.
In its overview of the UK’s P2P industry, S&P pointed out that if P2P platforms continue to grow, they are likely to require more institutional investment. S&P noted that institutional investment is already on the rise, with Zopa and Funding Circle sourcing more than half of their total funding from institutions in 2018.
“Banks and non-bank lenders will be major sources of institutional capital for P2P lending platforms,” the report added. “Also, if UK platforms expand the use of securitizations as a source of funding, it could represent an income stream for financial institutions.”
Overall, the report had a positive outlook on the UK’s P2P sector. S&P Global Market Intelligence estimated that cumulative origination volumes grew at a compound annual growth rate of 175 per cent between March 2005 and March 2019, indicating the enormous growth of the industry over the past 14 years.
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The three biggest platforms — Zopa, RateSetter and Funding Circle — accounted for nearly two-thirds of aggregate originations as of the first quarter of 2019 and 57.1 per cent of 2018 annual originations. By contrast, in 2013, those three platforms accounted for more than 75 per cent of all originations, suggesting that the growth of smaller platforms is eating into the market share of the ‘big three’.
“While the industry faces legitimate threats, it has proven to be more than a fad,” said the report.”2019 marks the 15th anniversary of the founding of Zopa, the first online P2P lending platform. A decade and a half of rapid origination growth and proliferation of platforms are strong evidence that the model of connecting borrowers with savers via an online platform is a viable financing mechanism in the digital age.”
The data was based on a study of 12 P2P platforms: Zopa, RateSetter, Lending Works, Funding Circle, ThinCats, Crowdstacker, Folk2Folk, MarketInvoice, Assetz Capital, Landbay, LendInvest and Proplend.
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